US bond rally loses steam after Trump’s tariffs pledge

NEW YORK – US Treasury long-term yields rose on Tuesday, as a sharp bond rally lost momentum and investors assessed US President-elect Donald Trump’s tariff pledges.

Trump said on Monday he would impose tariffs on products from Canada, Mexico and China, sparking volatility as investors braced for trade disputes. The announcement came after a sharp rally in bonds triggered by Trump’s pick of hedge fund manager Scott Bessent as US Treasury Secretary.

The backup in yields reflected the risk of rising inflation under higher tariffs, some investors said. It was also an indication that technical factors that contributed to the earlier rally had lost some steam, said Subadra Rajappa, head US rates strategy at Société Générale.

Investors digested a handful of economic data on Tuesday indicating the economy remained on solid footing. This included Federal Housing Finance Agency data showing US single-family house prices increased solidly in September, as well as the November reading of Consumer Confidence released by the Conference Board, which was in line with expectations.

Minutes of the Nov. 6-7 Federal Open Market Committee meeting, which were released on Tuesday, showed Federal Reserve officials appeared divided at their meeting over how much farther they may need to cut interest rates, though many said it was appropriate to reduce policy restraint gradually.

Short-term Treasury yields declined after the release, while rates futures traders marginally increased their bets on a 25 basis point cut at the Fed’s rate-setting meeting next month. A December cut had a 60% probability later on Tuesday, up from 56% earlier in the day, CME Group data showed.

“Concern about the tariffs and concern about the US deficit are what’s weighing on the market for the ability of the Fed to really cut,” said Matt Eagan, portfolio manager and head of the Full Discretion Team at Loomis, Sayles & Company.

At the same time, he said the market reaction to the potential inflationary impact of tariffs was relatively muted, as many interpreted Trump’s pledges as a negotiating tactic.

“There’s a lot of optimism that this is all just negotiations … Treasuries are more or less getting the joke,” he said.

On the supply side, the Treasury sold USD 70 billion in five-year notes on Tuesday, following a USD 69 billion two-year note auction on Monday that was well received by investors.

Tuesday’s auction was also met with solid demand. The notes were sold with a high yield of 4.197%, nearly two basis points below the market rate at the bidding deadline, in a sign investors were willing to pay up to absorb the issuance.

Benchmark 10-year yields were last seen at 4.306%, up from 4.263% on Monday.

Two-year yields, which tend to more closely reflect monetary policy expectations, were last at 4.254%, slightly lower than on Monday. Further out, 30-year yields were at 4.481%, up from 4.447% on Monday.

The closely watched yield curve comparing two- and 10-year Treasury yields steepened on Tuesday and was last at 4.6 basis points. It had inverted marginally on Monday, with short-term bonds yielding more than longer-dated ones.

(Reporting by Davide Barbuscia, Editing by Nick Zieminski)